Ontario Market Assessment
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Regulated Price Plan Price Report November 1, 2013 to October 31, 2014 Ontario Energy Board October 17, 2013 Executive Summary This report contains the electricity commodity prices under the Regulated Price Plan (RPP) for the period November 1, 2013 through October 31, 2014. The prices were developed using the methodology described in the Regulated Price Plan Manual (RPP Manual). In accordance with the applicable regulation, the Board must forecast the cost of supplying RPP consumers and ensure that RPP prices reflect this cost. RPP prices are reviewed by the Board every six months to determine if they need to be adjusted. In broad terms, the methodology used to develop RPP prices has two essential steps: 1. Forecasting the total RPP supply cost for 12 months, and 2. Establishing prices to recover the forecast RPP supply cost from RPP consumers over the 12-month period. The calculation of the total RPP electricity supply cost involves several separate forecasts, including forecasts of: o the hourly market price of electricity; o the electricity consumption pattern of RPP consumers; o the electricity supplied by those assets of Ontario Power Generation (OPG) whose price is regulated; o the costs related to the contracts signed by non-utility generators (NUGs) with the former Ontario Hydro and the costs associated with certain OPG coal facilities1; o the costs of the supply contracts, and conservation and demand management (CDM) initiatives of the Ontario Power Authority (OPA); and o the net variance account balance (as of October 31, 2013) carried by the OPA. The market-based price for electricity used by RPP consumers reflects both the hourly market price of electricity and the electricity consumption pattern of RPP consumers. Residential consumers, who represent most RPP consumption, use relatively more of their electricity during times when total Ontario demand and prices are higher (than the overall Ontario average) and relatively less when total Ontario demand and prices are lower (than the overall Ontario average). This consumption pattern makes the average market price for RPP consumers higher than the average market price for the entire Ontario electricity market. 1 In addition to the contracts with the NUGs, OEFC is also the counterparty to a contingency support agreement with OPG in relation to two of its generation facilities identified in O. Reg. 427/04 (Payments to the Financial Corporation re Section 78.2 of the Act). Payments made to OPG under this agreement are related to the carbon dioxide (CO2) limits that began to apply to OPG effective January 1, 2009. Executive Summary 2 Average RPP Supply Cost The hourly market price forecast was developed by Navigant Consulting Ltd. (Navigant). The forecast of the simple average market price for 12 months from November 1, 2013 is $19.67/ MWh (1.967cents per kWh). After accounting for the consumption pattern of RPP consumers, the average market price for electricity used by RPP consumers is forecast to be $21.56/ MWh (2.156cents per kWh). The combined effect of the other components of the RPP supply cost is expected to increase this per kilowatt-hour price. The collective impact of the other components is summarized by the Global Adjustment. The Global Adjustment reflects the impact of the NUG contract costs, which are above market prices, the regulated prices for OPG’s prescribed baseload nuclear and hydroelectric generating facilities, which may be above or below market prices, and the cost of supply contracts held by the Ontario Power Authority (OPA), most of which are above market prices. The cost associated with CDM initiatives implemented by the OPA is also included, as are amounts approved by the Board in respect of Board-approved CDM programs undertaken by electricity distributors. The Global Adjustment also reflects payments made to OPG’s Nanticoke and Lambton facilities, under an agreement with the Ontario Electricity Financial Corporation (OEFC), related to the CO2 limits that began to apply to OPG effective January 1, 2009. The forecast net impact of the Global Adjustment is to increase the average RPP supply cost by $67.93/ MWh (6.793cents per kWh). Another factor to be taken into account is that actual prices and actual demand cannot be predicted with absolute certainty; both price and demand are subject to random effects. Two adjustments are made to account for this forecast variance. A small adjustment is made to the RPP supply cost to account for the fact that these random effects are more likely to increase than to decrease costs. This adjustment was determined to be $1.00 / MWh (0.100 cents per kWh). Without this adjustment, the RPP would be expected to end the year with a small debit variance. An additional adjustment factor is required to “clear” the expected balance in the OPA variance account as of October 31, 2014. The current surplus balance was accumulated because of higher than forecast RPP revenues and lower than forecast supply costs since May 1, 2013. The forecast adjustment factor to clear the existing variance balance is a credit (decrease in the RPP price) of $1.50/ MWh (0.150cents per kWh). The resulting average RPP supply cost is $89.00/ MWh. The average RPP price (RPA) is 8.900cents per kWh. This is summarized in Table ES-1. Executive Summary 3 Table ES-1: Average RPP Supply Cost Summary (for the 12 months from November 1, 2013) RPP Supply Cost Summary for the period from November 1, 2013 through October 31, 2014 Current Forecast Wholesale Electricity Price $19.67 Load-Weighted Price for RPP Consumers ($ / MWh) $21.56 Impact of the Global Adjustment ($ / MWh) + $67.93 Adjustment to Address Bias Towards Unfavourable Variance ($ / MWh) + $1.00 Adjustment to Clear Existing Variance ($ / MWh) + ($1.50) Average Supply Cost for RPP Consumers ($ / MWh) = $89.00 Inevitably, there will be a difference between the actual and forecast cost of supplying electricity to all RPP consumers. This difference is referred to as the unexpected variance and will be included in the RPP supply cost for the next RPP period. RPP consumers are not charged the average RPP supply cost. Rather, they pay prices under price structures that are designed to make their consumption weighted average price equal to the average supply cost. There are two RPP price structures, one for consumers with conventional meters (Tiered Pricing) and one for consumers with eligible time-of-use (or “smart”) meters who pay time-of-use (TOU) prices. Regulated Price Plan (TOU Pricing) Consumers with eligible time-of-use (or “smart”) meters that can determine when electricity is consumed during the day will pay under a time-of-use price structure. This currently applies only to consumers of those utilities that have implemented time-of-use prices. The prices for this plan are based on three time-of-use periods per weekday2. These periods are referred to as Off-Peak (with a price of RPEMOFF), Mid-Peak (RPEMMID) and On-Peak (RPEMON). The lowest (Off-Peak) price is below the RPA, while the other two are above it. The resulting time-of-use (TOU) prices for consumers with eligible time-of-use meters are: o RPEMOFF = 7.2cents per kWh (64% of TOU load); o RPEMMID = 10.9cents per kWh (18% of TOU load); and, o RPEMON = 12.9cents per kWh (18% of TOU load). These prices reflect the seasonal change in the TOU pricing periods which will take effect on November 1, 2013 and May 1, 2014. TOU pricing periods are: o Off-peak period (priced at RPEMOFF): . Winter and summer weekdays: 7 p.m. to midnight and midnight to 7 a.m. 2 Weekends and statutory holidays have one TOU period: Off-peak. Executive Summary 4 . Winter and summer weekends and holidays:3 24 hours (all day) o Mid-peak period (priced at RPEMMID) . Winter weekdays (November 1 to April 30): 11 a.m. to 5 p.m. Summer weekdays (May 1 to October 31): 7 a.m. to 11 a.m. and 5 p.m. to 7 p.m. o On-peak period (priced at RPEMON) . Winter weekdays: 7 a.m. to 11 a.m. and 5 p.m. to 7p.m. Summer weekdays: 11 a.m. to 5 p.m. Regulated Price Plan - Tiered Pricing RPP consumers that are not on TOU pricing pay prices in two tiers; one price (referred to as RPCMT1) for monthly consumption up to a tier threshold and a higher price (referred to as RPCMT2) for consumption over the threshold. The threshold for residential consumers changes twice a year on a seasonal basis: to 600 kWh per month during the summer season (May 1 to October 31) and to 1000 kWh per month during the winter season (November 1 to April 30). The threshold for non-residential RPP consumers remains constant at 750 kWh per month for the entire year. The resulting tiered prices for consumers with conventional meters are: o RPCMT1 = 8.3cents per kWh, and o RPCMT2 = 9.7cents per kWh. Based on consumption over the 12-month period ending September 30, 2013, approximately 57% of RPP tiered consumption was at the lower tier price (RPCMT1) and 43% was at the higher tier price (RPCMT2). This ratio is expected to remain the same in the upcoming RPP period. Given these proportions, the average price for conventional meter RPP consumption is forecast to be equal to the RPA. The average price a consumer on TOU prices will pay depends on the consumer’s load profile (i.e., how much electricity is used at what time). As discussed above, RPP prices are set so that a consumer with an average load profile will pay the same average price under either the tiered or TOU prices, as shown in Table ES-2.4 This average price is equal to the average RPP unit supply cost (equal to the RPA) of 8.9¢ / kWh.